The northern Delaware and the Delaware Valley office leasing markets are not seeing signs of a recovery, according to the second quarter reports from CBRE and Newmark.
CBRE reported that the office market showed hints of a recovery in 2022, Since then, the market has further softened across all submarkets, leading to a 22.1% overall vacancy rate.
Newmark also reported an increase in the northern Delaware vacancy rate, listing an 18.3% figure. Vacancy rates vary among firms due to the differences in the buildings tracked.
At the start of 2023, the regional office market saw numerous instances of downsizing at lease expiration and offloading excess space via subleasing, a trend that continued in the second quarter, CBRE and Newmark reported.
Newmark attributed the rise in subleasing to employees preferring hybrid environments that combine home and office work.
According to Newmark, an example of the trend came when AAA put a 68,000-square-foot building near Newark on the market.
Leasing activity was anemic, with the largest transaction totaling 13,000 square feet, Newmark reported. Meanwhile, Bank of New York, Mellon, vacated 57,000 square feet in north Wilmington, Newmark reported.
“Trophy buildings” that command higher lease rates had lower vacancies but showed signs of future softening, with lease expirations coming up in 2024.
One of the highest figures in the region came in downtown Wilmington, which had a 31.2% vacancy rate. North New Castle County was not far behind at 25.4%. Western New Castle County reported the lowest vacancy rate in the Delaware Valley at 9.9%, with southern New Castle at 14.6%, CBRE reported.
One subleasing trend is what CBRE describes as “plug and play,” where new tenants simply move into the space and do not make improvements. That eliminates the need for landlords to offer incentives that customize space for new occupants.
Downtown Wilmington and other areas continue to see a conversion of office space to residential use, with Buccini/Pollin Group reassembling the former DuPont corporate campus with office space converted to apartments.
BPG has a long track record of conversions, including the massive former Delaware Trust building near the DuPont office complex.
In north Wilmington, BPG also converted the former Concord Plaza office complex into a mixed-use residential, restaurant, and office site.
Another former corporate site, Barley Mill, was redeveloped by Pettinaro, with residential, office, restaurant, and retail space with a Wegmans supermarket as the anchor tenant.
Bucking the trend is Delaware-based Delle Donne & Associates, which is building a high-rise office building at Avenue North, the former AstraZeneca office campus.
Avenue North has attracted large tenants, including ChristianaCare and chemical company Solenis. That led to vacant space at their former locations. AstraZeneca continues to occupy space at Avenue North.
